-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FLEzdf8JIfuwmfZvUChZj1nP7X2W9K1Nw0vJcfAcGliAFDjDU48VEarK3i0lKCVl t7n2ToqROzhxUzZlgki0pQ== 0001047469-99-016528.txt : 19990428 0001047469-99-016528.hdr.sgml : 19990428 ACCESSION NUMBER: 0001047469-99-016528 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990328 FILED AS OF DATE: 19990427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNO RESTAURANT CORP CENTRAL INDEX KEY: 0000812075 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 042953702 STATE OF INCORPORATION: DE FISCAL YEAR END: 0929 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09573 FILM NUMBER: 99601766 BUSINESS ADDRESS: STREET 1: 100 CHARLES PARK RD CITY: WEST ROXBURY STATE: MA ZIP: 02132 BUSINESS PHONE: 6173239200 MAIL ADDRESS: STREET 1: 100 CHARLES PARK ROAD CITY: WEST ROXBURY STATE: MA ZIP: 02132 10-Q 1 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 28, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------- ------------------ Commission file number 1-9573 ----------------------------------- UNO RESTAURANT CORPORATION -------------------------------------- (Exact name of registrant as specified in its charter) Delaware 04-2953702 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 Charles Park Road, West Roxbury, Massachusetts 02132 -------------------------------------------------------- (Address of principal executive offices) (Zip Code) (617) 323-9200 -------------------------------------------------------- (Registrant's telephone number, including area code) -------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of April 23, 1999, 10,163,529 shares of the registrant's Common Stock, $.01 par value, were outstanding. UNO RESTAURANT CORPORATION INDEX
PAGE ---- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS............................3 Consolidated Balance Sheets -- March 28, 1999 and September 27, 1998...........3 Consolidated Statements of Income -- Thirteen and twenty-six weeks ended March 28, 1999 and March 29, 1998...............4 Consolidated Statements of Cash Flows -- Twenty-six weeks ended March 28, 1999 and March 29, 1998..................................5 Notes to Consolidated Financial Statements......................................6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................8 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS..................14 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............15
2 CONSOLIDATED BALANCE SHEETS (Amounts in thousands except share data)
March 28, Sept.27, 1999 1998 --------- --------- (Unaudited) ASSETS CURRENT ASSETS Cash $ 1,977 $ 2,030 Accounts receivable, net 1,755 1,784 Inventory 2,288 2,296 Prepaid expenses and other assets 601 815 --------- --------- TOTAL CURRENT ASSETS 6,621 6,925 PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Land 18,372 16,874 Buildings 29,951 27,823 Leasehold improvements 97,316 93,324 Equipment 55,315 52,536 Construction in progress 1,817 3,309 --------- --------- 202,771 193,866 Less allowance for depreciation and amortization 74,676 68,543 --------- --------- 128,095 125,323 OTHER ASSETS Deferred income taxes 8,216 7,450 Royalty fee 114 157 Liquor licenses and other assets 3,290 3,340 --------- --------- $146,336 $143,195 --------- --------- --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 5,801 $ 6,589 Accrued expenses 8,787 7,949 Accrued compensation and taxes 3,006 2,666 Income taxes payable 707 995 Current portion of long-term debt and capital lease obligations 4,097 4,081 --------- --------- TOTAL CURRENT LIABILITIES 22,398 22,280 Long-term debt, net of current portion 40,961 38,676 Capital lease obligations, net of current portion 560 666 Other liabilities 7,887 7,904 SHAREHOLDERS' EQUITY Preferred Stock, $1.00 par value, 1,000 shares authorized, none issued Common Stock, $.01 par value, 25,000 shares authorized, 13,798 and 13,776 shares issued and out standing in Fiscal Years 1999 and 1998, respectively 138 138 Additional paid-in capital 54,068 53,944 Retained earnings 45,140 42,203 --------- --------- 99,346 96,285 Treasury Stock (3,457 and 3,175 shares at cost,in Fiscal Years 1999 and 1998, respectively) (24,816) (22,616) --------- --------- TOTAL SHAREHOLDERS' EQUITY 74,530 73,669 --------- --------- $146,336 $143,195 --------- --------- --------- ---------
3 CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands except per share data)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED -------------------- ---------------------- March 28, March 29, March 28, March 29, 1999 1998 1999 1998 -------- -------- --------- -------- REVENUES Restaurant sales $46,718 $43,272 $91,651 $84,883 Consumer product sales 2,303 2,323 4,867 4,608 Franchise income 1,230 1,087 2,480 2,159 -------- -------- -------- --------- 50,251 46,682 98,998 91,650 COSTS AND EXPENSES Cost of sales 13,153 11,835 26,105 23,166 Labor and benefits 15,514 14,547 30,420 28,296 Occupancy 7,237 6,970 14,331 13,960 Other operating costs 4,443 4,769 8,688 8,802 General and administrative 3,717 3,211 7,205 6,337 Depreciation and amortization 3,105 3,064 6,166 6,077 -------- -------- -------- --------- 47,169 44,396 92,915 86,638 -------- -------- -------- --------- OPERATING INCOME 3,082 2,286 6,083 5,012 OTHER EXPENSE 853 935 1,700 1,858 -------- -------- -------- --------- Income before income taxes 2,229 1,351 4,383 3,154 Provision for income taxes 735 447 1,446 1,042 -------- ------- -------- --------- Net income before cumulative effect of change in accounting principle $ 1,494 $ 904 $ 2,937 $ 2,112 Cumulative effect of change in accounting principle for preopening costs net of income taxes 636 -------- -------- ------- --------- NET INCOME $ 1,494 $904 $ 2,937 $ 1,476 -------- -------- -------- --------- -------- -------- -------- --------- Basic and Diluted Earnings per Share: Net income $ .14 $ .08 $ .28 $ .19 Cumulative effect of change in accounting principle (.06) -------- -------- -------- --------- Net income $ .14 $ .08 $ .28 $ .13 -------- -------- -------- --------- -------- -------- -------- --------- Weighted average shares outstanding: Basic 10,339 10,930 10,396 10,947 Diluted 10,485 10,955 10,485 10,988
4 CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)
TWENTY-SIX WEEKS ENDED ---------------------------- March 28, March 29, 1999 1998 -------- -------- OPERATING ACTIVITIES Net Income $2,937 $1,476 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle 636 Depreciation and amortization 6,223 6,743 Deferred income taxes (766) (703) Provision for deferred rent 175 271 (Gain)Loss on disposal of equipment (2) (1) Changes in operating assets and liabilities, net of effects from business acquisitions: Accounts receivable 29 1,285 Inventory 8 127 Prepaid expenses and other assets 246 (1,683) Accounts payable and other liabilities 215 (1,417) Income taxes payable (288) (1,427) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 8,777 5,307 INVESTMENT ACTIVITIES Additions to property, equipment and leasehold improvements (8,951) (6,586) Proceeds from sale of fixed assets 2 1 -------- -------- NET CASH USED FOR INVESTING ACTIVITIES (8,949) (6,585) FINANCING ACTIVITIES Proceeds from revolving credit agreement 39,933 31,215 Principal payments on revolving credit agreement and capital lease obligations (37,738) (29,248) Purchase of Treasury Stock (2,200) (384) Exercise of stock options 124 10 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 119 1,593 -------- -------- INCREASE (DECREASE) IN CASH (53) 315 CASH AT BEGINNING OF PERIOD 2,030 1,486 -------- -------- CASH AT END OF PERIOD $1,977 $1,801 -------- -------- -------- --------
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION The accompanying unaudited, consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in conformity with generally accepted accounting principles. They should be read in conjunction with the financial statements of the company for the fiscal year ended September 27, 1998. The accompanying financial statements include all adjustments (consisting only of normal recurring accruals) that management considers necessary for a fair presentation of its financial position and results of operations for the interim periods presented. NOTE B - EARNINGS PER SHARE Basic earnings per share represents net income divided by weighted average shares of common stock outstanding during the period. Weighted average shares used in diluted earnings per share include common stock equivalents arising from stock options using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share.
Thirteen Weeks Ended Twenty-six Weeks Ended March 28, March 29, March 28, March 29, 1999 1998 1999 1998 ----------- ---------- --------- --------- Numerator for Basic Earnings per Share: Weighted average shares outstanding 10,338,667 10,930,209 10,395,711 10,947,731 Common Stock equivalents: Stock options 146,020 24,758 89,167 40,321 ----------- ---------- ----------- ----------- Numerator for Diluted Earnings per Share: Weighted average shares outstanding including common stock equivalents 10,484,687 10,954,967 10,484,878 10,988,052 ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- Net Income before cumulative effect of change in accounting principle $1,494,000 $904,000 $2,937,000 $2,112,000 Cumulative effect of change in accounting principle for preopening costs net of income taxes (636,000) ----------- ---------- ----------- ----------- Net Income $1,494,000 $904,000 $2,937,000 $1,476,000 ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- Basic and Diluted Earnings per Share: Net Income before cumulative effect of change in accounting principle $ .14 $ .08 $ .28 $ .19 Cumulative effect of change in accounting principle (.06) ----------- ---------- ----------- ----------- Net Income $ .14 $ .08 $ .28 $ .13 ----------- ---------- ----------- ----------- ----------- ---------- ----------- -----------
6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.) NOTE C - PRE-OPENING COSTS In 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 98-5 ("SOP 98-5") entitled "Reporting on the Costs of Start-up Activities." The SOP 98-5 requires companies to expense as incurred all start-up and pre-opening costs that are not otherwise capitalizable as long lived assets. This new accounting standard is effective for fiscal years beginning after December 15, 1998 with early adoption encouraged. The Company elected early implementation of the accounting standard at the beginning of fiscal 1998. The cumulative effect of this change in accounting principle was $636,000, net of income taxes. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SAFE HARBOR CAUTIONARY STATEMENT From time to time, information and statements provided by the Company in filings with the Securities and Exchange Commission, shareholder reports, press releases and oral statements may include forward-looking statements which reflect the Company's current views with respect to future events and financial performance. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainties, which could cause actual results to differ materially from historical results or those anticipated. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Risks and uncertainties include, without limitation, the Company's ability to open new restaurants and operate new and existing restaurants profitably, changes in local, regional and national economic conditions, especially economic conditions in the areas in which the Company's restaurants are concentrated, increasingly intense competition in the restaurant industry, increases in food, labor, employee benefits and similar costs, and other risks detailed from time to time in the Company's news releases, reports to shareholders and periodic reports filed with the Securities and Exchange Commission. The following tables set forth the percentage relationship to total revenues, unless otherwise indicated, of certain items included in the Company's income statements and operating data for the periods indicated: THIRTEEN WEEKS ENDED MARCH 28, 1999 COMPARED TO THIRTEEN WEEKS ENDED MARCH 29, 1998
13 Weeks Ended -------------- 3/28/99 3/29/98 ------- ------- REVENUES: Restaurant sales 93.0% 92.7% Consumer product sales 4.6 5.0 Franchise income 2.4 2.3 ------ ------ Total 100.0% 100.0% ------ ------ COSTS AND EXPENSES: Cost of food & beverages (1) 26.8% 26.0% Labor and benefits (1) 31.6 31.9 Occupancy costs (1) 14.8 15.3 Other operating costs (1) 9.1 10.5 General and administrative 7.4 6.9 Depreciation and Amortization (1) 6.3 6.7 ------ ------ Operating income 6.1 4.9 Other expense 1.7 2.0 ------ ------ Income before taxes 4.4 2.9 Provision for income taxes 1.4 1.0 ------ ------ Net income 3.0% 1.9% ------ ------ ------ ------
(1) Percentage of restaurant and consumer product sales NUMBER OF RESTAURANTS AT END OF QUARTER:
Company-owned Uno's - full service 98 94 Franchised Uno's - full service 66 64
8 Total revenue increased 7.6% to $50.3 million from $46.7 million last year. Company-owned restaurant sales rose 8.0% to $46.7 million from $43.3 million last year due primarily to an increase in comparable-store sales for the second quarter which were up 4.0% from the same period last year. Average weekly sales, which includes sales at comparable stores as well as new units, increased 4.9% during the second quarter. This reflects higher-than-average sales levels for the latest variation of its new prototype units which generated sales volumes approximately 10% higher than our non-prototype store average for the quarter. Growth in operating weeks of full-service Pizzeria Uno units was up 3.3% resulting from the addition of five restaurants during the past four quarters, one of which was opened in the second quarter of fiscal 1999. Consumer product sales were essentially flat for the second quarter this year at $2,303,000 from $2,323,000 last year. Sales in the food service category grew 6.8% as increased shipments to airlines, hotels and corporate dining accounts were partially offset by the loss of a large private label foodservice account. Sales in the supermarket category, which include Uno branded, private label and club store sales, decreased 7.0%, primarily due to lower club store sales over the prior year. Franchise income, which includes royalty income and initial franchise fees, increased 13.2% to $1,230,000 versus $1,087,000 last year. Royalty income increased 10.9% to $1,205,000 this year compared to $1,087,000 last year. The increase in royalty income was primarily due to an 8.2% increase in average weekly sales for full-service franchised restaurants. Franchise fees of $25,000 were recorded this year compared to no fees last year. Two full-service franchise restaurants opened and one full-service franchise restaurant closed during the second quarter of fiscal 1999. Operating income was $3,082,000, which represents an operating margin of 6.1%. Operating income for last year was $2,286,000, which represents an operating margin of 4.9%. Cost of food and beverage as a percentage of restaurant and consumer product sales increased to 26.8% compared to 26.0% last year. This increase was due in part to cost increases associated with the company-wide rollout of the new menu initiative and higher cheese costs, which were up approximately 11% over last years levels. The block cheese market, which reached a record level of $1.90 per pound during the quarter, dropped dramatically to $1.25 per pound early in January 1999 and remained in the $1.25 to $1.33 per pound range through the end of the quarter. The Company recently signed an agreement with its cheese supplier to fix the cost of mozzarella cheese for the balance of calendar 1999. Labor costs were down slightly 31.6% from 31.9% last year as a percentage of restaurant and consumer product sales as an increase in the average wage rate was absorbed by a higher check average and lower retail labor expense. Occupancy costs declined as a percentage of restaurant and consumer product sales to 14.8% from 15.3% due to operating leverage gains from higher unit volumes. Other operating costs were down to 9.1% as a percentage of restaurant and consumer product sales from 10.5% last year on lower advertising and pre-opening expense, as well as operating leverage gains from higher unit volumes. General and administrative expenditures as a percentage of total revenues increased to 7.4% from 6.9% last year on higher salary and related wage expense associated with field support staffing increases designed to improve restaurant operations, and increased trainee labor expense. Depreciation and amortization expense as a percentage of restaurant and consumer product sales was down to 6.3% versus 6.7% last year due to increased sales leverage. Other expense of $853,000 decreased from $935,000 last year. Interest expense decreased to $799,000 from $903,000 last year due to a slightly lower borrowing rate and a reduced level of debt. The effective tax rate of 33% for the quarter remained the same as last year. 9 TWENTY-SIX WEEKS ENDED MARCH 28, 1999 COMPARED TO TWENTY-SIX WEEKS ENDED MARCH 29, 1998
26 WEEKS ENDED ----------------------------- 3/28/99 3/29/98 ------- ------- REVENUES: Restaurant sales 92.6% 92.6% Consumer product sales 4.9 5.0 Franchise income 2.5 2.4 ------- ------- Total 100.0% 100.0% ------- ------- COSTS AND EXPENSES: Cost of food & beverages (1) 27.0% 25.9% Labor and benefits (1) 31.5 31.6 Occupancy costs (1) 14.8 15.6 Other operating costs (1) 9.0 9.8 General and administrative 7.3 6.9 Depreciation and amortization (1) 6.4 6.8 ------- ------- Operating income 6.1 5.5 Other expense 1.7 2.1 ------- ------- Income before taxes 4.4 3.4 Provision for income taxes 1.4 1.1 ------- ------- Net income before cumulative effect of change in accounting principle 3.0 2.3 Cumulative effect of change in accounting principle for pre-opening costs net of income taxes .7 ------- ------- Net income 3.0% 1.6% ------- ------- ------- -------
(1) Percentage of restaurant and consumer product sales Total revenue increased 8.0% to $99.0 million from $91.7 million last year. Company-owned restaurant sales also rose 8.0% to $91.7 million from $84.9 million last year due primarily to an increase in comparable-store sales for the first half of the year which were up 4.8% from the same period last year. Average weekly sales, which includes sales at comparable stores as well as new units, increased 5.6% during the first half of the year as the latest variation of the new prototype units generated sales volumes approximately 12% higher than our non-prototype store average for the first half of the year. Growth in operating weeks of full-service Pizzeria Uno units was up 2.7% resulting from the addition of five restaurants during the past four quarters, four of which were opened in the first half of fiscal 1999. Consumer product sales increased 5.6% for the first half of this year to $4,867,000 from $4,608,000 last year. Sales in the contract food service category grew 25.1%, bolstered by increased shipments to airlines, hotels, cinemas and corporate dining accounts. Sales in the supermarket category decreased 12.7% over the same period last year as a 14.2% increase in Uno branded sales to retail grocers was offset by the loss of a large account and reductions in club store sales. Franchise income, which includes royalty income and initial franchise fees, increased 14.9% to $2,480,000 versus $2,159,000 last year. Royalty income increased 10.0% to $2,375,000 this year compared to $2,159,000 last year. The increase in royalty income was primarily due to a 9.1% increase in average weekly sales for full-service franchised restaurants. Franchise fees of $105,000 were recorded this year compared to no fees last year. Six full-service franchise restaurants opened and three full-service franchise restaurants closed during the first half of fiscal 1999. Operating income was $6,083,000, which represents an operating margin of 6.1%. Operating income for last year was $5,012,000, which represents an operating margin of 5.5%. Cost of food and beverage as a percentage of restaurant and consumer product sales increased to 27.0% compared to 25.9% last year. This increase was due in part to cost increases associated with the company-wide rollout of the new menu initiative and higher cheese costs, which were up approximately 17% over last years levels. 10 Labor costs were down slightly 31.5% from 31.6% last year as a percentage of restaurant and consumer product sales as an increase in the average wage rate was offset by an increase in the average check. Occupancy costs declined as a percentage of restaurant and consumer product sales to 14.8% from 15.6% due to operating leverage gains from higher unit volumes. Other operating costs were down to 9.0% as a percentage of restaurant and consumer product sales from 9.8% last year on lower advertising and pre-opening expense. General and administrative expenditures as a percentage of total revenues increased to 7.3% from 6.9% last year on higher salary and wage expense, increased trainee labor expense and higher store opening expense related to the opening of four full-service company-owned and six full-service franchise restaurants during the first half of the year. Depreciation and amortization expense as a percentage of restaurant and consumer product sales was down to 6.4% versus 6.8% last year due to increased sales leverage. Other expense of $1,700,000 decreased from $1,858,000 last year. Interest expense decreased to $1,598,000 from $1,787,000 last year due to a slightly lower borrowing rate and a lower debt level. The effective tax rate of 33% for the first half of fiscal 1999 remained the same as last year. The Company adopted SOP 98-5 "Reporting on the Costs of Start-up Activities" retroactive to the beginning fiscal 1998, and the cumulative effect of this change in accounting principle was $636,000, net of income taxes, for the first half of fiscal 1998. Net income increased to $2,937,000 from $1,476,000 last year based on the factors noted above, and reflects the change in accounting principle adopted. LIQUIDITY AND SOURCES OF CAPITAL The following table presents a summary of the Company's cash flows for the period ended March 28, 1999.
(In Thousands) -------------- Net cash provided by operating activities $8,777 Net cash used in investing activities (8,949) Net cash provided by financing activities 119 -------- Increase (Decrease) in cash $ (53) -------- --------
Historically, the Company had leased most of its restaurant locations and pursued a strategy of controlled growth, financing its expansion principally from operating cash flow, public equity offerings, the sale of senior, unsecured notes, and revolving lines of credit. During the first six months of fiscal 1999, the Company's investment in property, equipment and leasehold improvements was $9.0 million. The Company currently plans to open approximately seven restaurants in fiscal 1999, four of which were opened in the first six months of fiscal 1999. The average cash investment required to open a full service Pizzeria Uno restaurant, excluding land and pre-opening costs, is approximately $1.6 million. As of March 28, 1999, the Company had outstanding indebtedness of $40.2 million under its $55 million credit facility, $768,000 in capital lease obligations and $4,698,000 under its mortgage financing. Advances under the revolving credit facility will accrue interest at the lender's prime rate plus 0-50 basis points, or alternatively, 100-175 basis points above LIBOR. The Company anticipates using the revolving credit facility in the future for the development of additional restaurants, and for working capital. In September 1998, the Board of Directors of the Company authorized the repurchase of 1.0 million shares of the Company's Common Stock through a "Dutch Auction" tender offer. The terms of the tender offer provided that the Company would purchase up to 1,000,000 shares (subject to increase under certain circumstances) of its Common Stock at prices, not in excess of $7.00 nor less then $5.75 per share, specified by tendering stockholders. On October 30, 1998, the Company completed the repurchase of 274,721 shares at a price of $7.00 per share. The total number of shares purchased represented approximately 3% of the shares outstanding at the time. The Company used a portion of its $55 million credit facility to purchase the shares tendered. On April 14, 1999, the Board of Directors extended the previous one million share stock repurchase program announced on April 22, 1998, for an additional twelve months. To date under this authorization, the company has repurchased 540,364 shares. 11 The Company believes that existing cash balances, cash generated from operations and borrowing under its revolving line of credit will be sufficient to fund the Company's capital requirements for the foreseeable future. The Company is currently obligated under 92 leases, including 90 leases for Company- owned restaurants and two leases for its executive offices. The Company is currently negotiating the renewal of a lease for an office building containing one of its restaurants and continues to pay rent on a tenancy at will basis in the interim. YEAR 2000 COMPLIANCE The Company has completed its initial assessment of its computer systems to identify the systems that could be affected by the "Year 2000" issue and has developed an implementation and compliance plan to resolve the issue. The Company's current plan calls for implementation to be completed during fiscal year 1999. The Year 2000 problem is a result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's programs that have time sensitive software may recognize the date using "00" as the year 1900 rather than the year 2000, which could result in system failures or miscalculations using existing software. In addition to the assessment of in-house computer systems, the Company is in the process of assessing the readiness of its vendors, franchise partners and non-information technology equipment for the Year 2000 issue. The Company has received assurance from its major food distributor regarding their Year 2000 compliance plans and has verified that its credit card processing vendor is Year 2000 compliant. The Company has send out questionnaires to its business-critical vendors and franchise partners to assess their Year 2000 readiness. Contingency plans will be developed in the event that business-critical vendors or franchise partners do not provide the Company with satisfactory evidence of their Year 2000 readiness. The Company intends to make every reasonable effort to assess the Year 2000 readiness of these critical business partners and to create action plans to address the identified risks. The Company has determined that the most reasonably likely worst case scenario would result from the inability to acquire food supplies from our foodservice distributors. The Company is currently assessing this possibility and will develop a contingency plan to assure that there is adequate inventory on-hand to provide service until an alternative source of supplies becomes available. The Company believes its operations will not be significantly disrupted if other third parties with whom the Company has relationships with are not year 2000 compliant. The Company also believes that it will not have any material liability to third parties as a result of any potential non-compliance with Year 2000 issues. All maintenance and modification costs will be expensed as incurred, while the cost of new software, if material, is being capitalized and depreciated over its expected useful life. Testing and remediation of all the Company's systems and applications is expected to cost approximately $200,000, of which approximately $125,000 has been incurred as of the end of the second quarter of fiscal 1999. Of the expected total cost of testing and remediation approximately $60,000 relates to repair issues and the remainder to replacement of equipment. All estimated costs have been budgeted and are expected to be funded by cash flows from operations. No information technology projects have been deferred due to Year 2000 compliance efforts. The Company is not pursing independent verification of its systems as it believes that any effort would be as costly as the remediation effort and is not warranted at this time. The Company does not believe the costs related to the Year 2000 compliance project will be material to its financial position or results of operations. However, the cost of the project and the date on which the Company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans, and other factors. Unanticipated failures by critical vendors, franchise partners, as well as the failure by the Company to execute its own remediation efforts could have a material adverse effect on the cost of the project and its completion date. As a result, there can be no assurance that these forward-looking estimates will be achieved and the actual cost and vendor compliance could differ materially from those plans, resulting in material financial risk. 12 IMPACT OF INFLATION Inflation has not been a major factor in the Company's business for the last several years. The Company believes it has historically been able to pass on increased costs through menu price increases, but there can be no assurance that it will be able to do so in the future. Future increases in local area construction costs could adversely affect the Company's ability to expand. SEASONALITY The Company's business is seasonal in nature, with revenues and, to a greater degree, operating income being lower in its first and second fiscal quarters than its other quarters. The Company's seasonal business pattern is due to its concentration of units in the Northeast, and the resulting lower winter volumes. 13 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS The Company has market risk exposure to interest rates on its fixed and variable rate debt obligations and manages this exposure through the use of interest rate swaps. The Company does not enter into contracts for trading purposes. The information below summarizes the Company's market risk associated with debt obligations and derivative financial instruments as of March 28, 1999. For debt obligations, the table presents principal cash flows and related average interest rates by expected fiscal year of maturity. For variable rate debt obligations, the average variable rates are based on implied forward rates as derived from appropriate quarterly spot rate observations as of the fiscal quarter end. For interest rate swaps, the table presents the notional amounts and related weighted average interest rates by fiscal year of maturity. The average variable rates are the implied forward rates as derived from appropriate quarterly spot rate observations as of the fiscal quarter end. Expected Fiscal Year of Maturity (US$ in millions)
Fair Value 1999 2000 2001 2002 2003 Thereafter 03/28/99 ---- ---- ---- ---- ---- ---------- -------- Liabilities: Fixed Rate $0.1 $0.2 $0.2 $0.3 $ 0.3 $3.6 $4.7 Average Interest Rate 8.75% 8.75% 8.75% 8.75% 8.75% Variable rate $1.8 $3.7 $3.7 $3.7 $14.5 $8.5 $40.2 Average Interest Rate 6.56% 7.01% 7.26% 7.39% 7.53% Interest Rate Swaps: Receive Variable/ Pay Fixed $30.0 $30.0 $30.0 $(0.3) Weighted Average Pay Rate 5.96% 5.96% 5.84% - - - Average Receive Rate 5.06% 5.51% 5.75%
14 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS None. (b) REPORTS ON FORM 8-K Uno Restaurant Corporation did not file any Reports on Form 8-K during the quarter ended March 28, 1999. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNO RESTAURANT CORPORATION -------------------------------- (Registrant) Date: April 27, 1999 By: /s/ Craig S. Miller ------------------ ------------------------------ Craig S. Miller Chief Executive Officer (Principal Executive Officer) Date: April 27, 1999 By: /s/ Robert M. Vincent ------------------ ---------------------------------- Robert M. Vincent Senior Vice President-Finance, and Chief Financial Officer (Principal Financial Officer) 16 EX-27 2 EXHIBIT 27
5 0000812075 UNO RESTAURANT CORP. 1,000 U.S. DOLLARS 6-MOS OCT-03-1999 SEP-28-1998 MAR-28-1998 1 1,977 0 1,755 0 2,288 6,621 202,771 74,676 146,336 22,398 49,408 0 0 138 74,392 146,336 98,998 98,998 26,105 92,915 102 0 1,598 4,383 1,446 2,937 0 0 0 2,937 0.28 0.28 Net of Treasury Stock
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